Master of Business (MBA) education loans can be heavy on the pocket for families and funding for such a course in a top-notch business institution in our country or abroad is difficult. Education loans for MBA degrees can differ from other loans as the repayment schedule may differ and interest rate can be low. But, nonetheless, the risk of borrowing money looms large on any family’s financial condition. In case of getting a loan for B-Schools, reading terms and conditions and agreeing to it before taking a loan is important. Taking an MBA loan has many challenges as one has to calculate the moratorium period, interest rates, repayment terms and other aspects. However, there are benefits of taking a loan as it helps to make you independent and one can avail tax benefits. The borrower or co-borrower can avail a benefit under Section 80(E) of Income Tax Act of India.
To prevent falling in traps and missing out on EMIs which can lead to charges and penalties, one can follow 10 easy steps to ensure a healthy loan, according to Jagranjosh.
List of 10 steps are given below:
Gather information before taking loan schemes
Several private and government-owned banks along with non-government banks offer loans for MBA courses. Each has to offer a different set of schemes that ensure students with wide range of needs can get benefits. So it necessary to collect information on all schemes and compare them simultaneously to avoid confusion and one can choose the best suited its needs.
Acquire loan without margin money
Banks and lenders have their own top ten institutions in which they offer education loans and depending upon their own preference, the banks and non-banking financial companies lend full or partial funding. The banks at times ask for the margin money to be paid alongside the partial funding which is not a norm and the borrower must negotiate with the lender. Some banks and lenders do not ask for margin money and one should always aim to go for loan without margin money. The banks and lenders have prerequisite norms on education loan and one should always check for margin money rules.
Negotiate loan processing fee
Banks always ask for a fee for processing of loans. The charge from 0.50 per cent can go upto 1 per cent or Rs 2000 whichever is higher. Some lenders charge a flat Rs 5000. However, most of the NBFCs and private banks do not charge loan processing fee. In case of a merit student, the banks often waive off the fee. So, one should be aware of the charge and must try to negotiate with the banker.
Interest rate must be evaluated
Banks declare interest rate for educational loans as Base Rate plus Additional rate of interest. It must be noted that final interest rate for MBA loans are decided by adding up the two and one must check the base rate of the bank and add the additional rate given by the bank to avoid confusion.
Moratorium period interest rate
Borrowers must learn that during the moratorium period the banks often charge compound interest rate due to wrong entry of the moratorium period. They must ensure that the correct period is entered and only simple interest is charged by banks. Students must ensure that they are not charged wrongly by checking the bank loan statement.
Floating interest rate over fixed interest rate
Floating interest rate must be opted during taking of MBA loans as the rate changes with according to the base rate. If the banks base rate is lowered then the interest will also come down.
If possible start paying loans during moratorium period
Starting to repay loans during moratorium period will often reduce the interest by 0.50 per cent or 1 per cent. This will help in lessening of the financial burden during repayment period.
Work experience matters
Top MBA colleges prefer candidates with work experiences and banks also ease up on the interest rates by 0.25 per cent to 0.50 per cent. MBA students can negotiate with the banks to get lower interest rates if they are working individuals.
Female MBA aspirants to get loan favour
Several MBA colleges promote gender diversity during admission by taking in larger group of female students. Similarly, banks and NBFCs prefer women loanees and they can easily negotiate moratorium period, interest rates, repayment terms and other aspects.
As written above that the borrower can avail tax benefit, the education loan is exempted under income tax and thus the borrowers can pay the debt over a longer period of time. Generally, students take 1 year to 9 years to repay loans. So, there is no reason to hurry for students as banks may also offer lower interest rates with longer repayment period. Students can take their time and choose the right option.